Temporary Components of Stock Returns: What Do the Data Tell Us?

EVIEW OF FINANCIAL STUDIES, Vol. 9 No. 4

Posted: 18 Dec 1996

See all articles by Christopher G. Lamoureux

Christopher G. Lamoureux

University of Arizona

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Abstract

Within the past few years, several papers have suggested that returns on large equity portfolios may contain a significant predictable component at horizons of 3 to 6 years. Subsequently, the tests used in these analyses have been criticized (appropriately) for having widely misunderstood size and power - rendering the conclusions inappropriate. This criticism however has not focused on the data - it addressed the properties of the tests. In this paper we adopt a subjectivist analysis - treating the data as fixed - to ascertain whether the data have anything to say about the permanent/temporary decomposition. The data speak clearly and they tell us that for all intents and purposes, stock prices follow a random walk.

JEL Classification: G12

Suggested Citation

Lamoureux, Christopher G. and Zhou, Guofu, Temporary Components of Stock Returns: What Do the Data Tell Us?. EVIEW OF FINANCIAL STUDIES, Vol. 9 No. 4, Available at SSRN: https://ssrn.com/abstract=8001

Christopher G. Lamoureux (Contact Author)

University of Arizona ( email )

Tucson, AZ 85721
United States
520-621-7488 (Phone)
520-621-1261 (Fax)

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

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